GEC carves out a solid recovery

GE Capital
, Australia’s largest non-bank financial services company, is enjoying solid recovery in its market segments in Australia after the fourth quarter of 2009 was the strongest of that year and the first quarter of 2010 even stronger.

GEC, a wholly owned subsidiary of American industrial giant General Electric, operates a web of companies in Australia but yesterday provided a selective brief of its Australia and New Zealand operations.

Chief executive Skander Malcolm, who took over two months ago, said GEC had largely completed the portfolio restructuring that led it to sell the Wizard mortgage and car finance businesses.

He stressed GEC was committed to the remaining nine businesses and was growing in Australia and New Zealand under a strategy of targeting markets where the major banks “can’t or won’t" operate.

GEC was constantly looking at growth opportunities and foresaw new ones emerging in the post-financial crisis landscape, Mr Malcolm said.

“More niches have opened up as banks curb their own activities while other non-bank financiers have disappeared," he said. “We are optimistic. The folks who were doing irrational things are not around or have stopped doing them. That’s good for us."

GEC released figures for the Australia and New Zealand business showing a headline profit of $475 million for 2009 compared with a loss of $903 million in 2008. Net lending assets were $19.5 billion compared with $34 billion in 2008, before the Wizard and car finance sell-offs.

Revenue was down to $4.04 billion from $5.6 billion but cash flow from operating businesses – the key number for the US parent, Mr Malcolm said – was $13.33 billion in 2009 ($4.98 billion a year earlier).

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Net lending from ongoing businesses was $8.13 billion, down from $9.27 billion in 2008, while the credit quality and provisioning for the portfolio had improved.

Despite the restructuring, GEC remains a major player in the provision of point-of-sale finance for retailers, corporate finance, inventory finance, fleet and equipment finance, credit insurance and personal lending, particularly debt consolidation.

“Our products are in one-third of households," said Mr Malcolm, “and last year we opened up 300,000 new accounts in the retailer solutions business." Principle among this business, where GEC claims a 12 to 15 per cent market share, is the Coles credit card and retailer finance for firms like Harvey Norman.

In corporate financial services, where GEC concentrates on asset-based and cash-flow lending as opposed to the banks, which typically demand housing collateral from small business, Mr Malcolm said the March quarter recorded the biggest increase in lending since 2007.

As has been the case with other financiers, corporate deleveraging through 2009 saw the balance sheet remain flat while provisioning went down.

“SME’s say it’s nice to have someone doing a lend," he said. “If you don’t have an existing line with one of the banks, it’s pretty tough."

While GEC has a growth target for Australia, GE globally is scaling back its financial services business due in part to the funding challenges facing such a business.

In Australia, the traditionally lower priority GE industrial businesses, like resource industry services, health or new energy technologies, are now growing faster than financial services.

“We are growing, we don’t plan to divest any more (GEC businesses) but those other parts are growing very strongly," Mr Malcolm said.